What factors should determine dividend policy?
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What are the different types of dividend policies that an organization might adopt?
What factors should determine its dividend policy?
What effects might the chosen policy have on shareholders' wealth?
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This solution discusses the different dividend policies in 963 words.
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What are the different types of dividend policies that an organization might adopt?
Types of Dividends:
Cash Dividends
Regular cash dividends are those paid out of a company's profits to the owners of the business (i.e., the shareholders). A company that has preferred stock issued must make the dividend payment on those shares before a single penny can be paid out to the common stockholders. The preferred stock dividend is usually set whereas the common stock dividend is determined at the sole discretion of the Board of Directors.
Property Dividends
A property dividend is when a company distributes property to shareholders instead of cash or stock. Property dividends can literally take the form of railroad cars, cocoa beans, pencils, gold, silver, salad dressing or any other item with tangible value. Property dividends are recorded at market value on the declaration date.
Special One-Time Dividends
In addition to regular dividends, there are times a company may pay a special one-time dividend. These are rare and can occur for a variety of reasons such as a major litigation win, the sale of a business or liquidation of a investment. They can take the form of cash, stock or property dividends. Due to the temporarily lower rates of taxation on dividends, there has been an increase in special dividends paid in recent years.
Stock Dividend:
A stock dividend is a pro-rata distribution of additional shares of a company's stock to owners of the common stock. A company may opt for stock dividends for a number of reasons including ...
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